555_l22 Comparative Systems © Allen C. Goodman, 1999

555_l22 Criticisms of U.S. System Gaps in Medicare, Medicaid The “uninsured,” upwards of 40 million -- may be closer to 45 million. What does the rest of the world have to tell us?

555_l22 A Typology of Contemporary Health Care Systems Gordon (1988) develops a useful typology of four health benefit systems: 1. Traditional Sickness Insurance - This is fundamentally the private insurance market approach, with state subsidy. Coverage is basically employment-related. This type of system originated in Germany, and other countries which pioneered health care insurance. 2. National Health Insurance - The state establishes a national-level health insurance system. Canada has the most immediate experience with this organization. 3. National Health Service - The state provides the health care. The United Kingdom is a prime example of this approach. 4. Mixed System - Mixed elements of the above programs. Several countries including the United States fall into this group.

555_l22 Health Expenditure Shares

555_l22 Let’s look at shares Share s 1 = p 1 q 1 /y 1. For share to rise, what must happen? Assume first that p is unrelated to income y. Suppose that when y  by 1%, q  by 1%. So: s 2 = p 1 *(1.01*q 1 )/(1.01*y 1 ) = s 1 ! So for s 2 to rise, (%  q)/(%  y) > 1. Means that income elasticity must be greater than 1.

555_l22 High Expenditure Levels What are Americans are getting for their spending. High expenditures may have three meanings: a. High average level of services b. High resource costs of services c. Inefficient provision of services. In looking at cross-country differences, we keep these points in mind. A high level of services reflects at least the possibility that the populations have chosen to spend their incomes in this fashion. Cross-national studies indicate a fairly substantial income elasticity for health care. Thus U.S. expenditure levels reflect in part the high per capita income level in the United States.

555_l22 Non-cash aspects of the care In looking at health care costs in a national setting, people may find themselves in one of three "states of the world": - well (not ill) - waiting for treatment (when ill) - being treated. When being treated, the costs to society are usefully considered as the price of the treatment, multiplied by the quantity of the treatment. However, there is more to health care costs than simply dollars spent. A health care system can help people feel better when well. We do this in the United States by prenatal and infant care, inoculation, good nutrition (no bacon cheeseburgers), and good habits (no smoking). Other countries do this better. The United Kingdom has a far more comprehensive system of treating expectant mothers, infants, and children.

555_l22 A health care system can help people who are waiting for treatment. Consider someone who is awaiting a hip replacement. This is not life-threatening, but it may be painful.  In the United States, we replace hips immediately, and we need enough facilities to do so. Maintaining these operating rooms and surgical teams is costly.  In Canada, the patient may have to wait months for hip replacement. Does Canada save health care money by making the patient wait? Yes it does! Is it costless? Not to the patient who is awaiting care! Rationing health care moves the costs "off budget" but they are still costs. Non-cash aspects of the care

555_l22 A Model of Rationed Health Care and Private Markets Key feature of NHS is presumably that supply is inelastic w.r.t. price. If we allowed price to adjust to P c, there is presumably no excess demand. At P*, however, there is excess demand, and to avoid long queues, people go to the private sector. NHSPrivate PP QNQN QPQP PcPc P* DnDn SnSn PpPp QpQp QoQo Q* DpDp SpSp

555_l22 Goodman Paper - Estimating Equation ln q h =  0 +  1 ln y +  2 ln p h +  3 ln p o + u,(1) –q h is quantity of health services, –y is an appropriate income per capita measure, –p h is the price of health services, and –p o is the price of all other goods. Demand homogeneity implies that:  1 +  2 +  3 = 0.(2) Then: ln (e h /p o ) =  0 +  1 ln (y/p o ) + (1 +  2 ) ln (p h /p o ) + u. (3) where ln e h = ln p h + ln q h, and we’ve subtracted ln p o from both sides.

555_l22 Table 3 Pooled regressions. Income elasticities > 1. Implies that shares will  as incomes rise. Inclusion of price terms  income elasticities, by about 5%. Price elasticities are significant and important in their own right. Best value is

555_l22

What does picture say? US has higher predicted expenditures than anyone else. Even so, its expenditures are higher than the regression predicted. What can we say about other countries.

555_l22 Table 4 If we’re drawing a picture, can we do some analysis? Four types of systems –Sickness fund (less control) –National health insurance (more) –National health service (more) –Mixed system (less) Column 1 lumps sickness and mixed together. Control reduces expenditures by over 9%. Column 2 separate 3 different kinds of care. NHS reduces quantity by over 17%.